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YouTube Bows Out of Hollywood Arms Race With Netflix and Amazon

(Bloomberg) -- YouTube has canceled plans for high-end dramas and comedies, people with knowledge of the matter said, a pullback from its grand ambitions for a paid service with Hollywood-quality shows.

The Google-owned business has stopped accepting pitches for expensive scripted shows, said the people, who asked not to be identified because the decision hasn’t been announced. The axed programs include the sci-fi drama “Origin’’ and the comedy “Overthinking with Kat & June,’’ prompting their producers to seek new homes for the shows, the people said.

The retreat from direct competition with Netflix Inc. and Amazon.com Inc.’s Prime Video service reflects the high cost -- in billions of dollars -- needed to take on those deeply entrenched players, even for a rich tech giant like Google, the people said. YouTube generated more than $15 billion in ad sales last year without a huge slate of glitzy productions and concluded its money is better invested in music and gaming.

“In some ways, they never really went all-in on the strategy,” said Anthony DiClemente, an analyst at Evercore ISI. “That’s like bringing a butter knife to a gun fight.”

Shift to Free

The strategy change, first reported last November by the Hollywood Reporter, means all YouTube shows will eventually air for free. The company is still working out release strategies for the shows, the people said.

The shift also raises questions about the long-term future for Susanne Daniels, YouTube’s head of original productions since 2015. She was brought in to boost the volume and quality of YouTube’s original programming and is now looking to move on, according to people with knowledge of her thinking.

“While it’s strangely flattering to be the topic of Hollywood gossip, please know I am committed to YouTube and can’t wait to unveil our robust slate of new and returning originals,” Daniels said in an email.

A respected TV industry veteran, Daniels joined the company to develop and produce original shows aimed at making the YouTube Red subscription service a viable competitor to Netflix, Amazon and Hulu. Now, those efforts are more focused on programs like Kevin Hart’s “What the Fit,” with the comedian cheerleading in track pants.

Uphill Fight

While Netflix transformed itself from a DVD-delivery service into one of Hollywood’s largest studios, other technology companies have announced grand plans to make movies and TV only to retreat after a couple of years. Microsoft Corp. created a Los Angeles studio and ordered a show based on its popular game “Halo,’’ but shut down before the series came out. Yahoo lost $42 million on a trio of original series, including “Community,” and then scrapped its plans as well.

Apple Inc. will announce its first slate of original series on Monday, and analysts are already asking if the company has the stomach for Hollywood.

YouTube’s shift marks at least the company’s third reboot in the past decade and underscores what Hollywood executives see as the technology industry’s capricious approach to entertainment. In 2012, it paid producers and celebrities to create YouTube channels to bring more high-end original shows to a site then associated with cat videos and pranks. The company doubled its investment a year later, but then ended the program.

WB Roots

Daniels’s arrival signaled a new approach. She joined YouTube from MTV and previously ran television networks Lifetime and the WB, now known as the CW. At the WB, Daniels shepherded the hit shows “Buffy the Vampire Slayer” and “Dawson’s Creek.”

Daniels commissioned more than two dozen shows, at first funding talent born on the video site, like Swedish vlogger PewDiePie. She also mixed in more traditional Hollywood talent, like actress Kirsten Dunst and Doug Liman, the director of “The Bourne Identity.’’

YouTube’s biggest success under Daniels was “Cobra Kai,” a TV series derived from the movie “The Karate Kid.” The show was the most popular program on any streaming service the week it debuted, according to Parrot Analytics. And the company is negotiating for a third season, the people said.

The originals that will still exist on YouTube will now shift from the paid service to YouTube’s free version, where they will live alongside video blogs, makeup tutorials and toy “unboxing” videos.

YouTube Red, meanwhile, has been rebranded as a paid music service. The company has ordered short-form series highlighting emerging artists Maggie Rogers and Gunna, and Daniels has some oversight of those shows. But no programs can be approved without input from YouTube music boss Lyor Cohen. He vetoed a documentary about the Jonas Brothers, a pop trio, the people said, and the project landed at Amazon.

“Just because a big tech company wants to get into media, that doesn’t mean it’ll be successful,’’ said Rich Greenfield, an analyst with BTIG Research.

--With assistance from Mark Bergen and Anousha Sakoui.

To contact the reporter on this story: Lucas Shaw in Los Angeles at lshaw31@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Rob Golum, Nick Turner